You Can't Handle the Truth About the Mandate

The worst part of the past week's Supreme Court hearings on the constitutionality of Affordable Care Act was that no one involved in the oral arguments about the legitimacy of the individual mandate seemed to understand its purpose or function. To review: The individual mandate is one leg of what the law's architect, MIT economist Jonathan Gruber, calls the "three-legged stool" of reform, namely "banning discrimination in insurance markets, mandating that individuals purchase insurance, and providing low-income subsidies for insurance purchase."A two-legged stool, however, cannot stand. If insurers are forced to charge each policyholder, regardless of health, a premium based on the average risk of the pool, then the young and healthy will face premiums higher than what they would otherwise be charged. As a result, they'll decline insurance, leaving only older and sicker people in the risk pool. Of course, older and sicker people have higher average costs, meaning that premiums will go up, leading the relatively younger and healthier people left in the pool to opt out -- and the process repeats.Without a mandate keeping everyone, including the healthy, in the risk pool, the entire system eventually falls apart. That's not just theory -- it has happened in some states that have tried similar reforms without a mandate. For that reason, many experts believe there is no way the federal law can achieve its goal of universal, affordable insurance coverage without the mandate. In other words, the Supreme Court needs to recognize that the mandate can't be considered apart from the broader reform, because it's essential.In that light, it's not hard to understand many of the law's opponents' chagrined reactions to this week's oral arguments, which revolved around less important aspects of the mandate. The law's advocate, Solicitor General Donald Verrilli, defended the mandate on the basis that it solves the problem of uncompensated care. He claimed that not purchasing insurance is itself participation in the health care market, because everyone needs care sooner or later. The uninsured actively risk the possibility they get sick and run up hospital fees they can't pay, sticking the insured, ultimately, with the bill.As Harvard law professor Noah Feldman noted with dismay in a Bloomberg News column, this line of defense resulted in the absurd spectacle of the hearings devolving into an extended hypothetical about cost-shifting that would result from a broccoli mandate. Feldman was shocked at the comparison: "inaction is different in the health insurance context. If I choose not to buy broccoli, others can still buy it at a market price. If I choose not to buy health insurance, universal coverage becomes impossible. That is a fundamental difference. The solicitor general should say so. If he does, Justice Kennedy should listen."Similarly, Kevin Outterson, a professor of health law at Boston University, complained that "Republican Justices and the Solicitor General displayed remarkably limited understanding of the nature of health insurance risk pools. If a healthy person stays out of the pool, the average costs for those left in the pool are higher. That’s not true for underwritten insurance products (such as life or auto)."In other words, many supporters of the law are terrified that the signature achievement of Barack Obama's first term may wiped out because a bunch of lawyers never took intro to health economics.Nevertheless, as frustrating as this must be for those who understand the policy issue, the fact is that while Verrilli's rhetoric may have been lacking, his strategy probably was sound. It's not that he -- or the justices -- don't understand the economics of insurance. It's that a full explanation of the logic behind the mandate would lead to places the defendants didn't want to go.One exchange in particular illustrates the dilemma Verrilli faced. Early in the hearing, Justice Alito challenged him to move past the uncompensated care justification of the mandate, asking, "isn't it the case that what this mandate is really doing is not requiring the people who are subject to it to pay for the services that they are going to consume? It is requiring them to subsidize services that will be received by somebody else."That would have been a perfect opportunity for Verrilli to elaborate on the risk pooling issue. Instead, his response was evasive, if not unintelligible: "when you enact guaranteed issue and community rating reforms, and you do so in the absence of a minimum coverage provision, it's not that insurance companies take on more and more people and then need a subsidy to cover it, it's that fewer and fewer people end up with insurance because their rates are not regulated. Insurance companies, when -- when they have to offer guaranteed issue and community rating, they are entitled to make a profit. They charge rates sufficient to cover only the sick population because health --" At that point, mercifully, he was cut off.Yet Verrilli didn't botch the response because he didn't get it. Elsewhere, he clearly indicated that he understands the concept of the mandate, specifically referencing the failure of reforms in New Jersey in Kentucky that were similar to the Affordable Care Act, but lacked a mandate.Furthermore, none of the liberal justices, who are certainly capable of understanding a simple description of insurance markets, took up Feldman's preferred line of argument. At points, both Justices Ginsburg and Breyer came to Verrilli's aid, and yet they hewed closely to the line that the problem of uncompensated care was the justification for the mandate.In fact, ignorance of the true purpose of the mandate may a good thing for the law. If the public doesn't like the mandate now, just imagine if it were known that it exists to force healthy young folks into subsidizing others, and not for purposes of personal responsibility.The opponents of the mandate understand this. In an amicus brief filed by 215 experts who disapprove of the mandate, they write: "Thus, those subject to the mandate have not contributed materially to the cost-shifting problem identified by the Government. Instead, using the individual mandate as a subsidy, Congress was compensating for the market effects of its own actions. Whatever one might say about such a course as a policy matter, the constitutional implications of permitting such bootstrapping as a valid regulation of interstate commerce are sweeping and unprecedented."One gets the sense that the law's detractors would have preferred that the case were argued on those grounds.It's also telling that former governor Mitt Romney, while no ally of the administration, used its language to promote and defend his own health care mandate in Massachusetts. Romney has promotedhis version of the mandate as requiring individuals "to finally take responsibility for some portion of their health care rather than expecting government to give them a free ride."The problem, then, isn’t that the solicitor general or Supreme Court justices failed to articulate a serious defense of the mandate. It's that the public wasn't ready to hear one.